Section 7 — Income Deemed Received

Section 7 — INCOME DEEMED TO BE RECEIVED IN A TAX YEAR

BLOCK 1 — VERBATIM TEXT OF SECTION 7 (drawn from official PDF)

Marginal note — Income deemed to be received and dividend deemed to be income in a tax year

(1) The following incomes shall be deemed to be received in the tax year:—

(a) the annual accretion in that year to the balance at the credit of an employee participating in a recognised provident fund, to the extent provided in paragraph 6 of Part A of Schedule XI;

(b) the transferred balance in a recognised provident fund, to the extent

provided in paragraph 11(4) and (5) of Part A of Schedule XI;

(c) the contribution made by the Central Government or any other employ- er in that year to the account of an employee under a pension scheme mentioned in section 124.

(2) For inclusion in the total income of an assessee,—

(a) any dividend declared by a company or distributed or paid by it within the meaning of section 2(40)(a) to 4[(e)] shall be deemed to be the income 4. Substituted for “(f)” by the Finance Act, 2026, w.e.f. 1-4-2026. of the tax year in which it is so declared, distributed or paid, as the case may be;

(b) any interim dividend shall be deemed to be the income of the tax year in which the amount of such dividend is unconditionally made available by the company to the member who is entitled to it. Income on receipt of capital asset or stock-in-trade by specified person from specified entity.

BLOCK 2 — 1961 ACT COUNTERPART (Section 7)

Section 7 deems certain receipts as 'received' even where no actual cash transfer has taken place. The annual accretion to the credit balance of an employee in a recognized provident fund (to the extent specified in Schedule XI Part A Rule 6) is deemed received in the tax year of accrual. This drives the salary-perquisite computation under s. 17 read with s. 7.

BLOCK 3 — COMMENTARY

STATUTORY ARCHITECTURE

Section 7 is a deeming provision — its purpose is to plug timing gaps between accrual and actual receipt. Without s. 7, certain accumulations would escape taxation by virtue of not having been physically received in the relevant tax year. Three principal categories: (a) PF accretion in excess of statutory limits — deemed received; (b) Excess employer contribution to RPF / NPS / superannuation — deemed received as perquisite; (c) Inter-fund transfers (URPF to RPF) — deemed received.

JUDICIAL EVOLUTION — Vested Rights Crystallise as 'Received'

CIT v. L.W. Russel, (1964) 53 ITR 91 (SC) — employer's matching contribution to PF/superannuation becomes income only when vested rights crystallise; mere accumulation pending vesting does not amount to 'received' or 'due' salary.

HELD: The mere making of a contribution by the employer to a fund does not, by itself, give rise to income in the hands of the employee. The income arises only when the rights of the employee in the fund crystallise — when the contribution is vested in him absolutely. (per L.W. Russel ¶ 11).

JUDICIAL EVOLUTION — Excess Employer PF Contribution

CIT v. Larsen & Toubro Ltd., (2009) 313 ITR 1 (SC) — examined the s. 17(2)(vii) / s. 7(2) interaction; confirmed that excess employer contribution beyond the prescribed ceiling (now ₹7.5L per FA 2020 s. 17(2)(vii)) is taxable as perquisite, AND the annual accretion on such excess is taxable u/s 17(2)(viia).

DEPARTMENTAL PRACTICE

FA 2020 inserted s. 17(2)(vii) — employer contribution to RPF / NPS / approved superannuation in EXCESS of ₹7.5 lakh per FY is taxable as perquisite in the employee's hands. FA 2020 also inserted s. 17(2)(viia) — annual accretion (interest / dividend / similar income) on the excess contribution is also taxable. Income-tax Rules, 2026 Rule 3B prescribes the methodology for computing the annual accretion. Form 16 Part B reports both these amounts as perquisite components.

PLANNING NOTES & LITIGATION DEFENCE

(i) For high-CTC employees, monitor employer aggregate contribution to RPF + NPS + Superannuation — the ₹7.5L combined cap is per FY per employee. Excess triggers s. 17(2)(vii) perquisite tax. (ii) For employer-side, ensure correct Form 16 Part B reporting of s. 17(2)(vii)/(viia) — incorrect reporting attracts s. 271C TDS-default penalty. (iii) For employees withdrawing PF before 5 years of service, s. 192A TDS at 10% applies (Form 26Q reporting); withdrawal is taxable as 'salary in arrears' u/s 7. (iv) For inter-fund transfers (e.g., URPF → RPF on company recognition), the s. 7 deeming applies — verify that the URPF balance is shown as taxable receipt in the year of recognition.

CROSS-REFERENCES

• Section 17 — Perquisites (s. 17(2)(vii) — excess employer PF/NPS/superannuation contribution).
• Section 17(2)(viia) — annual accretion on excess employer contribution.
• Schedule XI Part A — Recognised Provident Fund rules.
• Income-tax Rules, 2026 r. 3B — annual accretion computation.
• Section 192A — TDS on premature PF withdrawal.